I'm a semiconductor analyst with a long history in the industry, having worked at major semiconductor manufacturers (Intel, National Semiconductor, and Infineon) and analyzed the market as one of its most visible analysts at Dataquest, Gartner, and Objective Analysis. I have a reputation as a prolific writer, frequent speaker, and deep technologist, yet I take pride in removing the veil of obscurity from this fascinating technology and marketplace. My credentials include a Bachelor of Electrical Engineering from Georgia Tech and an MBA from the University of Phoenix. I am a "Leader" (top 4%) with the Gerson Lehrman Group's Councils of Experts, an author and patent holder in semiconductor technology.

Where did Silicon Valley's Fabs Go?

Silicon Valley, famed for its semiconductor business, is actually the home of very few semiconductor manufacturing plants these days. This is a development that slipped past this analyst until an article in the San Jose Mercury News stated:

The Sprawling Silicon Valley semiconductor plants and the jobs they once provided have vanished…

How could that be? When I moved here in the late 1970s dozens of wafer fabrication plants (“fabs”) dotted the Valley. Incredulous, I contacted a major supplier of raw materials to these plants, who had to refer to another firm’s database to determine that there were no more than 9 plants in the entire San Francisco Bay Area, and five of these were small R&D facilities. Although I had assumed that this company could have determined the number by simply asking its own regional manager, the Valley has so very little semiconductor manufacturing that it is not accounted for that closely.

Where did all the fabs go? It’s complicated.

The cost of labor is high in Silicon Valley, and although labor is not a large component of semiconductor manufacturing costs (5-10%) this motivated manufacturing plants to seek cheaper areas. It was also helpful to build a fab away from the competition so that the highly-trained fab operators wouldn’t be lured to work elsewhere.

Meanwhile, countries whose economies were highly reliant upon heavy industry put together government incentives to grow semiconductor production in their own job markets. This started with Japan, whose model was later emulated by Korea and Taiwan. Tax holidays motivated established manufacturers to build fabs in these countries, while other government initiatives helped to create new semiconductor competitors. This happened to a certain degree in other states in the US as well – there are now more US-based semiconductor plants outside of Silicon Valley than within Silicon Valley!

But one very important change that has dramatically shifted the business is the high cost of building such a plant. Although a good wafer fab in the 1970s could be constructed at a cost in the low hundreds of millions, today’s competitive fab is a $6-8 billion behemoth. This has changed the complexion of the industry. In the 1970s, then-chairman of AMD Jerry Sanders declared: “Real men have fabs!” Nearly every semiconductor manufacturer owned its own captive processing plant. Today far more companies have adopted a “fabless” model, in which production is farmed out to “foundries” like TSMC, UMC, Winbond, and even Samsung. Major companies like Qualcomm, Broadcom, and nVidia use this model. Even AMD has adopted it!

Add to this the fact that a semiconductor chip worth $5-100 weighs about as much as a postage stamp, so it’s extraordinarily inexpensive to air freight these devices from anywhere in the world. There is no good reason to produce the product anywhere near the customer.

It is complicated, but the reasons that Silicon Valley has so few fabs are all very rational.

Although there are very few semiconductor plants in Silicon Valley, a significant number of semiconductor jobs, semiconductor company headquarters, and semiconductor know-how still reside here. Silicon Valley is still Silicon Valley, even if the vast majority of its manufacturing occurs elsewhere.

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They went to China and Taiwan – the main reason is California and EPA regulations and permitting. As TJ Rogers said a few years ago – ” I can get a facility up and running in China before I can get the paperwork and permits submitted much less approved in California or the US in general”. And more jobs left of course – then our elected officials are surprised that the jobs numbers are down!

Did they also go to Guadalajara, Jalisco, Mexico? There are a lot of information technology manufacturing facilities that have located in the Guadalajara metro area, making it the second strongest economic potential of any major North American city behind Chicago currently.

The 4 million population affords this industry cheap labor. It’s interesting how so many major corporations have disappeared their factories from American soil in the last 20 years, like rats from a sinking ship… So sad that this once great Nation was sold down river so long ago and STILL supports the Federal Reserve, which is responsible for raping and killing our whole economy.